JANUARY 15, 2014

Phoenix-area housing market stuck in neutral

Demand drops; price gains slow

TEMPE – Maybe the new year can bring some new energy to the Phoenix-area housing market? A new report from the W. P. Carey School of Business at Arizona State University shows stagnation as 2013 came close to an end. The latest data for Maricopa and Pinal counties, as of November, shows:

*Price gains continuing to slow, even though the median single-family-home price went up 23 percent from November 2012 to November 2013.
*Sales activity down 27 percent at the same time.
*Investor interest and construction permits also falling off.

Phoenix-area home prices have been going up since they hit a low point in September 2011, but the increases have slowed down in recent months. The median single-family-home price went up 23 percent from November 2012 to this past November – from $162,500 to $200,000. Realtors will note the average price per square foot rose about 18 percent. The median townhouse/condo price went up about 20 percent, to $119,900.

Higher prices – and relatively low consumer sentiment – have helped discourage buyer interest, though. Even as the tight supply of homes increases, demand is way down. Sales of single-family homes dropped 27 percent from November 2012 to November 2013.

“This past November was the weakest month for sales in several years,” explains the report’s author, Mike Orr, director of the Center for Real Estate Theory and Practice at the W. P. Carey School of Business. “Demand is drastically lower in a slide that started in July. By the beginning of January, demand had weakened enough to drop even below the limited supply here, despite the fact that we have 15 to 20 percent fewer active listings than normal.”

Orr says changes in the monthly median sales price are likely to be more modest moving forward, and we may even see a small decline if more low-end homes are placed on the market. This is good news for buyers, but not for sellers.

Still, those at the high end of the market, with single-family homes worth $500,000 or more, are in luck, with the stock market doing well and jumbo loans readily available. That segment of sales grew 14 percent from November 2012 to this past November. Sales at the low end of the market, below $150,000, fell 52 percent.

Investors continue to pull out of the Phoenix area, with better bargains to be found elsewhere. The percentage of residential properties purchased by investors hit its lowest level since June 2010. The number in November was 20.2 percent, down from the peak of 39.7 percent in July 2012. Out-of-state purchases in Maricopa County are also dropping, reaching 16.2 percent in November -- the lowest percentage since January 2009.

“The fourth quarter was also pretty disappointing to home builders in the area,” says Orr. “That may be one reason new single-family construction permits are way down. The Census reports a sharp drop from 1,030 in October to 667 in November, a small number by historic standards.”
Foreclosures also keep dropping in the Phoenix area. Foreclosure starts – owners receiving notice their lenders may foreclose in 90 days – went down 50 percent from November 2012 to November 2013. The number of completed foreclosures fell 64 percent. Orr says foreclosure auctions have really quieted down, with many homes reverting back to the bank again, instead of being sold.

“Despite all of this, time has shown us the Greater Phoenix housing market is very volatile,” Orr adds. “Conditions could quickly change during the first quarter of 2014, and we could see some surprises.”